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Apartment owners devise strategies so residents stay put.
Tenants often leave their apartments before a year is up. To hault this perpetual shuffle, some owners are going beyond the traditional tennis court and pool amenities. They're adding billiard pubs and cyber cafes, tanning beds and putting greens. Owners also are pampering residents with improved services - some that are literally for the dogs.
Costly cleaning
The main reason owners want to keep tenants (the industry prefers "residents") longer is to avoid the steep cost of refurbishing vacated units, which can range from $300 to more than $1,000. "It may just involve cleaning the carpet and touching up paint to a complete turn of repainting, changing carpet, new ceramic tiles and so on," says Stephen LeBlanc, president and COO of Charlotte, N.C.based Summit Properties Inc., which has a 18,696unit portfolio. He pegs the industry's average annual turnover rate at a surprisingly high 80% and up, while others in the business tend to put it closer to 60% or 70%.
The current trend to larger units will push up turnover costs, notes Richard Van Wert, senior vice president, acquisition group, in the Baltimore office of Chicago-based LaSalle Investment Management Inc., which advises clients on acquisitions and manages nearly 5,000 units for third parties. Carpet replacement alone in these bigger apartments can run to more than $1,000, he says.
LaSalle Investment's turnover rate is accelerated by short-term tenants waiting for their new homes to be completed and residents who are on extended business trips or prolonged vacations. The company's apartments on Coronado Island in San Diego and in Boca Raton, Fla., for example, are frequently used as "pseudo vacation or corporate hotels," says Van Wert. "We don't have to do the carpeting after three months in those situations, but there is still a lot of wear because of the heavy use."
Owners often set aside some units for month-tomonth rentals, and charge an extra 10% to 20% in rent for fewer than six months` occupancy. "In those circumstances, owners have to make sure the premium is truly compensating them for the additional turnover costs they wouldn't have had to digest if the units were rented for longer periods," adds Van Wert.
Turnover ratios hit the bottom line